Jori Arts: Why impact investing needs the stock market
This column was originally written in Dutch. This is an English translation.
Column by CFA Society Netherlands
Institutional investors are primarily seeking impact in private markets. However, to truly scale up, the hundreds of trillions on the stock market are indispensable.
By Jori Arts, Senior Portfolio Manager at PGB Pensioendiensten, Chair of the Asset Liability Management Committee, and member of the Advocacy Committee of CFA Society Netherlands
Impact investing is seen as the ‘next frontier’ in sustainable investing amongst institutional investors. However, their capital flows almost exclusively into private markets. Pension funds and insurers largely ignore impact in listed investments. This limits the potential social impact.
Institutional impact investors tend to avoid the stock market because they often have doubts about additionality in the secondary market. The Global Impact Investing Network (GIIN) is regarded as the market standard for impact investing. Its guidance document, ‘Guidance for Pursuing Impact in Listed Equities’, dispels these doubts. According to the GIIN, impact on the stock market does not require new capital. GIIN sets out two key concepts in this regard: the ‘Theory of Change’ and the ‘Investor Contribution’. The Theory of Change describes the causal link between an investment and social impact, whilst Investor Contribution encompasses the added value and the investor’s role in that change.
There are clear reasons for the preference for private markets. Impact investors often focus on specific themes, such as climate and biodiversity. This leads to more concentrated portfolios in specific market segments. In private markets, investors are more willing to accept this concentration, largely due to the lack of an investable benchmark index. Furthermore, investors in private markets more often hold a majority stake in companies. This enables them to drive change more directly.
Nevertheless, private markets fall short when it comes to financing the sustainability transition. After all, the financial challenge is enormous. The UN Conference on Trade and Development estimates the annual investment shortfall for the SDGs up to 2030 at around seven trillion dollars.1 Global private markets comprise ‘only’ 17 trillion dollars.2 Private markets alone cannot bridge this financing gap. Public equities and bonds (valued at 127 and 145 trillion dollars respectively3) are therefore indispensable. Both conventional sustainable investing with ESG integration and targeted impact investing contribute to this. In addition to their enormous scale, public markets offer unique advantages for the financial system. They guarantee daily liquidity and transparency. Higher liquidity can reduce the cost of capital for sustainable companies. This makes large-scale social projects financially viable more quickly.
To capitalise on these systemic benefits, a Theory of Change is required. In public markets, this works, amongst other things, by directing transition capital towards polluting industries. Investors demand concrete targets in advance, such as halving CO₂ emissions by 2030 or reallocating capital expenditure towards clean technology. This ensures that capital allocation on the stock market has a targeted and measurable social impact. Active shareholder engagement makes an important contribution to the Investor Contribution. Engaging in dialogue with companies can stimulate social change. However, this only works if there are sufficient means of applying pressure should change fail to materialise. Shareholders must have voting power and credible escalation strategies at their disposal. Without a willingness to vote against the board or to sell their shares, the actual impact remains limited. Furthermore, investors must be more focused on a measurable change model and have a credible action plan to prevent impact washing.
1 United Nations Conference on Trade and Development, The Costs of Achieving the SDGs
2 McKinsey, Global Private Markets Report 2026
3 Securities Industry and Financial Markets Association, Capital Markets Factbook 2025